Certified Public Accountant CPA Questions + Answers Part 25

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QUESTION 240
When unaudited financial statements of a nonissuer are presented in comparative form with audited financial statements in the subsequent year, the unaudited financial statements should be clearly marked to indicate their status and:
A. Thereportontheunauditedfinancialstatementsshouldbereissued.
II. The report on the audited financial statements should include a separate paragraph describing the responsibility assumed for the unaudited financial statements.
B. Ionly.
C. II only.
D. Both I and II.
E. EitherIorII.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. When audited financial statements are presented in comparative form with unaudited financial statements from a prior year, the auditor should either reissue his or her report on the unaudited statements or include a separate paragraph in the current year report describing the responsibility assumed for the unaudited statements. Choices "a", "b", and "c" are incorrect, per above Explanation: .
QUESTION 241
When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be:

A. Option A B. OptionB C. Option C D. Option D
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. When unaudited financial statements (generally the first quarter of the following year in an annual report) are presented in comparative form with audited financial statements in documents filed with the SEC, such statements should be clearly marked as "unaudited," but should not be referred to in the auditor's report. The statements need not be withheld until audited.
Choices "b", "c", and "d" are incorrect, based on Explanation: above.
QUESTION 242
Clark, CPA, compiled and properly reported on the financial statements of Green Co., a nonissuer, for the year ended March 31, 20X1. These financial statements omitted substantially all disclosures required by generally accepted accounting principles (GAAP). Green asked Clark to compile the statements for the year ended March 31, 20X2, and to include all GAAP disclosures for the 20X2 statements only, but otherwise present both years' financial statements in comparative form. What is Clark's responsibility concerning the proposed engagement?
A. Clarkmaynotreportonthecomparativefinancialstatementsbecausethe20X1statementsarenotcomparabletothe20X2statementsthatincludetheGAAP disclosures.
B. Clarkmayreportonthecomparativefinancialstatementsprovidedthe20X1statementsdonotcontainanyobviousmaterialmisstatements.
C. Clark may report on the comparative financial statements provided an explanatory paragraph is added to Clark's report on the comparative financial statements.
D. Clark may report on the comparative financial statements provided Clark updates the report on the 20X1 statements that do not include the GAAP disclosures.

Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Compiled financial statements that omit substantially all the disclosures required by GAAP are not comparable to financial statements that do include required GAAP disclosures.
Accordingly, the 20X1 statements are not comparable to the 20X2 statements and Clark cannot report on them.
Choice "b" is incorrect. The lack of material misstatements does not alter the fact that the statements are not comparable and therefore Clark may not report on them. Choice "c" is incorrect. Compiled financial statements that omit substantially all of the disclosures required by GAAP are not comparable to financial statements that include such disclosures. Accordingly, Clark may not report on the comparative financial statements, even if an explanatory paragraph is added. Choice "d" is incorrect. Updating the auditor's report does not change the fact that the financial statements for the two periods are not comparable.
Review of Interim Financial Information
QUESTION 243
Silver, CPA, has been hired by Andrews Co., a publicly held company, to conduct a review of its interim financial information. While performing review procedures, Silver becomes aware of a significant change in the control activities at one of Andrew's branch locations. Which of the following might Silver consider performing in response to this situation?
A. Makingadditionalinquiries,suchaswhethermanagementhasmonitoredthechangesandconsideredwhethertheywereoperatingasintended. B. Employinganalyticalprocedureswithalesspreciseexpectation.
C. Both "a" and "b" above.
D. Neither "a" nor "b" above.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. An accountant's knowledge of an entity's business and its internal control influences the inquiries made and analytical procedures performed. A significant change in control activities would likely result in further inquiry of management. Choice "b" is incorrect. An accountant's knowledge of an entity's business and its internal control influences the inquiries made and analytical procedures performed. A significant change in control activities would likely result in the accountant employing analytical procedures with a more precise expectation, since more precise expectations are more effective at detecting misstatements. Choices "c" and "d" are incorrect. Only choice "a" is correct, as explained above.
QUESTION 244

Davidson, CPA, is performing a review under auditing standards of Gold's interim financial information.
As part of planning, Davidson reads the audit documentation from the preceding year's annual audit. Which of the following is least likely to affect Davidson's review?
A. Asummaryofbothcorrectedanduncorrectedmisstatements.
B. Identifiedrisksofmaterialmisstatementduetofraud.
C. Significant weaknesses in internal control.
D. Scope limitations that were overcome through acceptable alternative procedures.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Scope limitations relate to problems in performing the audit, and, especially since they were overcome, they would bear little relationship to procedures performed in a review.
Choice "a" is incorrect. The nature of corrected misstatements should be considered, as they may be indicative of an ongoing problem. Uncorrected misstatements must also be considered as misstatements in one period often affect subsequent periods. Choice "b" is incorrect. Identified risks of material misstatement due to fraud help the accountant to identify the types of material misstatements that may occur in the interim financial information, and to consider the likelihood of their occurrence. Choice "c" is incorrect. Consideration of significant weaknesses in internal control helps the accountant identify the types of material misstatements that may occur in the interim financial information, and to consider the likelihood of their occurrence.
QUESTION 245
The annual financial statements of a publicly held company have been audited, and its interim financial statements have been reviewed. Which of the following is true about the application of professional standards to this review?
A. PCAOBstandardsapply.
B. StatementsonStandardsforAccountingandReviewServicesapply. C. Both PCAOB standards and SSARS apply.
D. None of the above.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. A review of the interim financial information of a publicly held company is conducted in accordance with PCAOB standards, and it is these

standards which should be referenced in the auditor's review report. (Note, however, that the PCAOB has adopted, at least initially, generally accepted auditing standards in this area.) Choices "b" and "c" are incorrect. Statements on Standards for Accounting and Review Services apply to reviews of the financial statements of nonissuers. Choice "d" is incorrect. A review of the interim financial information of a publicly held company is conducted in accordance with PCAOB standards.
QUESTION 246
Which of the following is not a required procedure in an engagement to review the interim financial information of a publicly held entity?
A. Obtainingcorroboratingevidenceabouttheentity'sabilitytocontinueasagoingconcern.
B. Comparingdisaggregatedrevenuedataforthecurrentinterimperiodwiththatofcomparablepriorperiods. C. Obtaining evidence that the interim financial information reconciles with the accounting records.
D. Inquiring of management about their knowledge of fraud or suspected fraud.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. A review of interim financial information is not designed to provide information regarding an entity's ability to continue as a going concern. Even if such information comes to the accountant's attention, the accountant is not required to corroborate it. Choice "b" is incorrect. As part of a review, the accountant is required to compare disaggregated revenue data for the current interim period with that of comparable prior periods. Choice "c" is incorrect. As part of a review, the accountant is required to obtain evidence that the interim financial information reconciles with the accounting records. Choice "d" is incorrect. As part of a review, the accountant is required to inquire of management about their knowledge of fraud, suspected fraud, or allegations of fraud.
QUESTION 247
In which case would the accountant be least likely to perform a review of interim financial information under PCAOB (auditing) standards?
A. QuarterlyreportsarerequiredtobefiledwiththeSEC.
B. Selectedquarterlyfinancialdataisincludedinanannualreport.
C. Quarterly financial data is included in the financial statements of a nonissuer.
D. The accountant is performing an initial audit of financial statements that include selected quarterly data.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:

Choice "c" is correct. A review of data included in financial statements of a nonissuer is performed under Statements on Standards for Accounting and Review Services, not under PCAOB (auditing) standards. A review of interim financial information under PCAOB (auditing) standards is only conducted for public companies (or companies anticipating going public). Choice "a" is incorrect. When an entity is required by the SEC to file a quarterly report, the SEC also requires that an independent accountant perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards before the report is filed. Choice "b" is incorrect. When a company is required by the SEC to include selected quarterly financial data in its annual report or in other SEC filings, a review (of the interim financial information) in accordance with PCAOB (auditing) standards is required. Choice "d" is incorrect. An accountant performing an initial audit of financial statements that include selected quarterly data should also perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards as part of the overall audit.
QUESTION 248
An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the:
A. Accountant'sreviewreportisnotapartoftheregistrationstatementwithinthemeaningoftheSecuritiesActof1933.
B. Accountantassumesnoresponsibilitytoupdatethereportforeventsandcircumstancesoccurringafterthedateofthereport.
C. Accountant'sreviewwasperformedinaccordancewithstandardsestablishedbytheSecuritiesandExchangeCommission.
D. Accountant obtained corroborating evidence to determine whether material modifications are needed for such information to conform with GAAP.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. If a report on a review of interim financial information is presented in a registration statement, the prospectus should include a statement that the report is not a "report" or "part" of the registration statement. The accountant should also read the other portions of the registration statement to ensure that his or her name is not used in a way that indicates greater responsibility than s/he intends.
Choice "b" is incorrect. The auditor is responsible to update the report for events occurring after the date of the report but prior to filing.
Choice "c" is incorrect. The accountant's review of interim financial information is performed in accordance with PCAOB standards, as approved (not established) by the SEC. Choice "d" is incorrect. Obtaining corroborating evidence is an audit procedure, not a review procedure.
QUESTION 249
The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether:
A. Areasonablebasisexistsforexpressinganupdatedopinionregardingthefinancialstatementsthatwerepreviouslyaudited. B. Materialmodificationsshouldbemadetoconformwithgenerallyacceptedaccountingprinciples.
C. The financial statements are presented fairly in accordance with standards of interim reporting.
D. The financial statements are presented fairly in accordance with generally accepted accounting principles.

Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. The objective of a review is to provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. Choice "a" is incorrect. When performing a review, the accountant does not gather enough evidence to update an audit opinion.
Choice "c" is incorrect. There are no "standards of interim reporting." Choice "d" is incorrect. Expressing an opinion as to whether the financial statements are presented fairly in accordance with GAAP is the result of an audit, not a review.
QUESTION 250
The quarterly data required by SEC Regulation S-K have been omitted. Which of the following statements must be included in the auditor's report?
A. Theauditorwasunabletoreviewthedata.
B. Thecompany'sinternalcontrolprovidesanadequatebasistocompletethereview.
C. The company has not presented the selected quarterly financial data.
D. The auditor will review the selected data during the review of the subsequent quarterly financial data.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. If the quarterly data required by SEC Regulation S-K have been omitted, the auditor's report must include a statement indicating that the company has not presented such data.
Choice "a" is incorrect. The auditor's report should only state that the auditor was unable to review quarterly data required by SEC Regulation S-K when the data have been included, but the auditor has not reviewed such data.
Choice "b" is incorrect. Generally, the auditor's report does not make reference to a review of interim financial information, since such information is not a required part of GAAP financial statements. (Note, however, that the auditor's report might be modified to indicate that the company's internal control was not sufficient to provide an adequate basis for a review of such information, in situations where quarterly data is included but not reviewed). Choice "d" is incorrect. If an entity is required to file quarterly reports, a review of this quarterly data is also required. Such review should be completed before the quarterly report is filed, not postponed to a subsequent quarter.
Letters for Underwriters
QUESTION 251

Which of the following matters is covered in a typical comfort letter?
A. Negativeassuranceconcerningwhethertheentity'sinternalcontrolsoperatedasdesignedduringtheperiodbeingaudited.
B. AnopinionregardingwhethertheentitycompliedwithlawsandregulationsunderGovernmentAuditingStandardsandtheSingleAuditActof1984. C. Positive assurance concerning whether unaudited condensed financial information complied with generally accepted accounting principles.
D. An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. In a typical comfort letter, the accountants express an opinion (i.e., positive assurance) concerning the financial statements' compliance (as to form) with the pertinent accounting requirements of the SEC.
Choice "a" is incorrect. No assurance is generally provided in a comfort letter regarding the operation of an entity's internal control.
Choice "b" is incorrect. A typical comfort letter is addressed to the underwriters of the securities. Government Auditing Standards and the Single Audit Act are not applicable to a comfort letter related to the issuance of securities.
Choice "c" is incorrect. Negative assurance (not positive) is typically provided regarding unaudited condensed financial information.
QUESTION 252
Comfort letters ordinarily are signed by the client's:
A. Independentauditor.
B. Underwriterofsecurities. C. Audit committee.
D. Senior management.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. A comfort letter is a letter containing a negative assurance from the CPA to the underwriter or certain other requesting parties just before the registration of the client's securities.
Choice "b" is incorrect. The comfort letter is sent to the underwriter. Choice "c" is incorrect. The audit committee does not sign a comfort letter. Choice "d" is incorrect. Senior management may sign a client representation letter, not a comfort letter.

QUESTION 253
When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive:
A. Negativeassuranceoncapsuleinformation.
B. Positiveassuranceonsupplementarydisclosures. C. A limited opinion on "pro forma" financial statements. D. A disclaimer on prospective financial statements.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive negative assurance on capsule information.
Choice "b" is incorrect. Positive assurance cannot be given if the information was not audited. Choices "c" and "d" are incorrect. A comfort letter generally covers the period from the date of the last auditor's report to the effective date of the registration. It does not cover "pro forma" or prospective financial statements.
QUESTION 254
Comfort letters ordinarily are:
A. Option A B. OptionB C. Option C D. Option D
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation

Explanation/Reference:
Explanation:
Choice "d" is correct. A comfort letter is a letter from the independent auditor to the named underwriter just before the registration of the client's securities. Choices "a", "b", and "c" are incorrect, based on the above Explanation: .
Attest Engagements
QUESTION 255
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAE) when:
A. Option A B. OptionB C. Option C D. Option D
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Statements on Standards for Attestation Engagements provide guidance with respect to compilation of a financial projection, but they do not address services involving advocating for a client, such as testifying as an expert witness. Choices "a", "b", and "d" are incorrect, per above Explanation: .
QUESTION 256
In an attest engagement, use of the accountant's report should be restricted to specified parties in all of the following situations, except:


A. Whenthecriteriausedtoevaluatethesubjectmatterareappropriateforonlyalimitednumberofparties. B. Whenreportingonanassertionaboutthesubjectmatterinsteadofreportingdirectlyonthesubjectmatter. C. When reporting directly on the subject matter and a written assertion has not been provided.
D. When reporting on an agreed-upon procedures engagement.
Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. There is no requirement that the accountant's report be restricted to specified parties when reporting on an assertion about the subject matter instead of reporting directly on the subject matter.
Choice "a" is incorrect, since use of the accountant's report should be restricted to specified parties when the criteria used to evaluate the subject matter are appropriate for only a limited number of parties.
Choice "c" is incorrect, since use of the accountant's report should be restricted to specified parties when reporting directly on the subject matter and a written assertion has not been provided.
Choice "d" is incorrect, since use of the accountant's report should be restricted to specified parties when reporting on an agreed-upon procedures engagement.
QUESTION 257
Which of the following is a term for an attest engagement in which a CPA assesses a client's commercial Internet site for predefined criteria that are designed to measure transaction integrity, information protection, and disclosure of business practices?
A. ElectroNet. B. EDIFACT. C. TechSafe. D. WebTrust.
Correct Answer: D

Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. A WebTrust engagement is an attestation engagement designed to measure transaction integrity, information protection, and disclosure of business practices. When an unqualified report is issued, the client may add the CPA WebTrust Seal to its Web site, indicating that its site is a reasonably safe and private place for e-commerce. Choice "a" is incorrect. ElectroNet is an Internet service provider. Choice "b" is incorrect. EDIFACT refers to standards developed by the United Nations for Electronic Data Interchange for Administration, Commerce, and Transport. These standards facilitate information flow among trading partners in many industries. The scope and format of these standards is similar, but not identical, to those developed in the United States.
Choice "c" is incorrect. TechSafe is a distracter.
QUESTION 258
An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of:
A. StatementsonAssuranceStandards.
B. StatementsonStandardsforAttestationEngagements.
C. Statements on Standards for Management Consulting Services. D. Statements on Auditing Standards.
Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. A WebTrust engagement is an attestation engagement in which the CPA determines whether the client's web site meets defined criteria relating to transaction integrity, information protection, and disclosure of business practices. Attestation engagements should be performed in accordance with Statements on Standards for Attestation Engagements (SSAEs). Choice "a" is incorrect. Statements on Assurance Standards is a distracter. Choice "c" is incorrect. Consulting services provided by CPAs range from advice on accounting- related matters to a wide range of services involving diverse technical disciplines. Consulting services performed by CPAs should be performed in accordance with Statements on Standards for Consulting Services (SSCSs). Choice "d" is incorrect. Audits (generally of financial statements) performed by CPAs should be performed in accordance with Statements on Auditing Standards (SASs).
QUESTION 259
A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain: A. Astatementoflimitationsontheuseofthereport.

B. Anopinionaboutwhethermanagement'sassertionisfairlystated.
C. Negative assurance that control risk has not been assessed.
D. Anacknowledgmentofresponsibilityforthesufficiencyoftheprocedures.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. The practitioner's report on agreed-upon procedures related to management's assertion about the entity's compliance with specified requirements is intended solely for the use of specified parties. Thus, the report should include a statement of limitations on the use of the report.
Choice "b" is incorrect. The report is in the form of procedures and findings. Since the work performed is less in scope than an examination, the accountant disclaims any opinion. Choice "c" is incorrect. The auditor does not provide any negative assurance relative to assessment of control risk or to compliance with the specified requirements. Choice "d" is incorrect. The report contains a statement that the sufficiency of the procedures is solely the responsibility of the parties specifying the procedures and a disclaimer of responsibility on the part of the accountant.
QUESTION 260
An examination of a financial forecast is a professional service that involves:
A. Compilingorassemblingafinancialforecastthatisbasedonmanagement'sassumptions.
B. Limitingthedistributionoftheaccountant'sreporttomanagementandtheboardofdirectors.
C. Assumingresponsibilitytoupdatemanagementonkeyeventsforoneyearafterthereport'sdate.
D. Evaluating the preparation of a financial forecast and the support underlying management's assumptions.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. An examination of a financial forecast is a professional service that involves:
1) evaluating the preparation of the prospective financial statements,
2) evaluating the support underlying the assumptions,
3) evaluating the presentation of the prospective financial statements in conformity with AICPA guidelines, and
4) issuing an examination report.
Choice "a" is incorrect. Compiling or assembling a financial forecast based on management's assumptions is part of a compilation engagement, not an examination

engagement. Choice "b" is incorrect. A financial forecast may be issued for general use. Choice "c" is incorrect. The accountant's standard report specifically states that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report.
QUESTION 261
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that:
A. Useofthereportisrestrictedtothespecifiedparties.
B. Theprospectivefinancialstatementsarealsoexamined.
C. Responsibility for the adequacy of the procedures performed is taken by the accountant.
D. Negative assurance is expressed on the prospective financial statements taken as a whole.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that certain conditions are met, including that the use of the report be restricted to the specified parties. Choice "b" is incorrect. There is no requirement that the prospective financial statements be examined.
In fact, the practitioner's report on the application of agreed-upon procedures states that the auditor did not perform an examination.
Choice "c" is incorrect. The specified parties must understand that they take responsibility for the sufficiency of the attest procedures. Choice "d" is incorrect. No assurance is expressed in an agreed-upon procedures engagement.
QUESTION 262
An accountant's compilation report on a financial forecast should include a statement that:
A. Theforecastshouldbereadonlyinconjunctionwiththeauditedhistoricalfinancialstatements.
B. Theaccountantexpressesonlylimitedassuranceontheforecastedstatementsandtheirassumptions. C. There will usually be differences between the forecasted and actual results.
D. The hypothetical assumptions used in the forecast are reasonable in the circumstances.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:

Choice "c" is correct. The accountant's compilation report on a client's financial forecast should include a caveat that the prospective results may not be achieved. Choice "a" is incorrect. The historical financial statements upon which the forecast is based need not be audited, nor must they accompany the forecast compilation. Choice "b" is incorrect. The accountant expresses no assurance in the compilation report on forecasted statements.
Choice "d" is incorrect. A compilation of a financial forecast would not include evaluation of the support for the assumptions underlying the forecast.
QUESTION 263
Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?
A. Theattestationstandardsprovideaframeworkfortheattestfunctionbeyondhistoricalfinancialstatements.
B. Therequirementthatthepractitionerbeindependentinmentalattitudeisomittedfromtheattestationstandards.
C. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study. D. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation standards.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Attestation standards provide a framework for the attest function beyond historical financial statements.
Choice "b" is incorrect. The independence standard is almost the same for both attest engagements and audits.
Choice "c" is incorrect. An attest engagement may be part of a larger engagement (such as a business acquisition study or a feasibility study).
Choice "d" is incorrect. Attestation standards include two of the three GAAS fieldwork standards: planning/supervision and evidence. They do not include the internal control standard.
QUESTION 264
An accountant's report on a review of pro forma financial information should include a:
A. Statementthattheentity'sinternalcontrolwasnotreliedoninthereview.
B. Disclaimerofopiniononthefinancialstatementsfromwhichtheproformafinancialinformationisderived.
C. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur. D. Reference to the financial statements from which the historical financial information is derived.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:

Choice "d" is correct. The accountant's report on a review of pro forma financial information should include a reference to the financial statements from which the historical information is derived and a statement as to whether such financial statements were audited or reviewed. Choice "a" is incorrect. No statement on the entity's internal control is necessary. Choice "b" is incorrect. If the auditor has audited the financial statements from which the pro forma financial information is derived, an opinion on those statements may be expressed. Choice "c" is incorrect. The report on a review of pro forma financial information would include an Explanation: of the objective and limitations of the information, but would not discuss the uncertainty surrounding occurrence of the transaction or event.
QUESTION 265
In performing an attest engagement, a CPA typically:
A. Supplieslitigationsupportservices.
B. Assessescontrolriskatalowlevel.
C. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. D. Provides management consulting advice.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. In performing an attest engagement, a CPA typically issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. Choice "a" is incorrect. Supplying litigation support services is not an attest engagement because the CPA is not reporting on subject matter (or an assertion about subject matter) that is the responsibility of another party.
Choice "b" is incorrect. An attest engagement may include a report on internal control; however, the assessed level of control risk may or may not be at a low level. Choice "d" is incorrect. Management consulting advice is not considered to be an attest engagement because the CPA is not reporting on subject matter (or on an assertion about subject matter) that is the responsibility of another party.
QUESTION 266
An accountant's standard report on a compilation of a projection should not include a:
A. Statementthatacompilationofaprojectionislimitedinscope.
B. Disclaimerofresponsibilitytoupdatethereportforeventsoccurringafterthereport'sdate.
C. Statement that the accountant expresses only limited assurance that the results may be achieved. D. Separate paragraph that describes the limitations on the presentation's usefulness.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation

Explanation/Reference:
Explanation:
Choice "c" is correct. A compilation of prospective financial statements is not intended to provide assurance on the prospective financial statements or the assumptions underlying such statements.
Choice "a" is incorrect. The report on a compilation should include a statement that a compilation is limited in scope.
Choice "b" is incorrect. The report on a compilation should include a statement that the accountant assumes no responsibility to update the report for events subsequent to the report date.
Choice "d" is incorrect. The report on a compilation should include a separate paragraph that describes the limitations on the presentation's usefulness.
QUESTION 267
Which of the following is not an attestation standard?
A. Sufficientevidenceshallbeobtainedtoprovideareasonablebasisfortheconclusionthatisexpressedinthereport. B. Thereportshallidentifytheassertionbeingreportedonandstatethecharacteroftheengagement.
C. The work shall be adequately planned and assistants, if any, shall be properly supervised.
D. A sufficient understanding of internal control shall be obtained to plan the engagement.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. A sufficient understanding of internal control is not required to be obtained in an attestation engagement.
Choice "a" is incorrect. In an attestation engagement, sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report. Choice "b" is incorrect. An attestation report should identify the assertion being reported on and state the character of the engagement.
Choice "c" is incorrect. In an attestation engagement, the work should be adequately planned and assistants, if any, should be properly supervised.
QUESTION 268
An accountant's compilation report on a financial forecast should include a statement that the:
A. Compilationdoesnotincludeevaluationofthesupportoftheassumptionsunderlyingtheforecast.
B. Hypotheticalassumptionsusedintheforecastarereasonable.
C. Range of assumptions selected is one in which one end of the range is less likely to occur than the other.
D. Prospective statements are limited to presenting, in the form of a forecast, information that is the accountant's representation.
Correct Answer: A

Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. An accountant's compilation report on a financial forecast should include a statement that the compilation does not include evaluation of the support of the assumptions underlying the forecast. (An examination of the financial forecast would include evaluation of the support).
Choice "b" is incorrect. An accountant does not give any form of assurance related to hypothetical assumptions, which are not used in financial forecasts anyway. (Hypothetical assumptions are used in financial projections).
Choice "c" is incorrect. No mention of the range of assumptions selected is made in the compilation report.
Choice "d" is incorrect. A compilation is limited to presenting, in the form of a forecast, information that is management's representation.
QUESTION 269
An attest engagement is one in which a CPA is engaged to:
A. Issueanexamination,areview,oranagreed-uponproceduresreportonsubjectmatter,oronanassertionaboutthesubjectmatter,thatistheresponsibilityof another party.
B. ProvidetaxadviceorprepareataxreturnbasedonfinancialinformationtheCPAhasnotauditedorreviewed.
C. Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts.
D. Assemble the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. An attest engagement is one in which a CPA is engaged to issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about subject matter, that is the responsibility of another party. Choice "b" is incorrect. Providing tax advice or preparing a tax return based upon financial information the CPA has not audited or reviewed does not require the CPA to "attest" to anything.
Choice "c" is incorrect. Testifying as an expert witness in accounting, auditing, or tax matters given certain stipulated facts is not considered to be an attestation engagement. Choice "d" is incorrect. Assembling the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance is a compilation engagement that falls under SSARS and no attestation is provided.
QUESTION 270
Which of the following professional services would be considered an attest engagement? A. AmanagementconsultingengagementtoprovideEDPadvicetoaclient.

B. Anengagementtoreportonmanagement'sdiscussionandanalysis(MD&A). C. An income tax engagement to prepare federal and state tax returns.
D. The compilation of financial statements from a client's accounting records.
Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. An engagement to report on management's discussion and analysis (MD&A) would be considered an attest engagement, because the accountant is issuing an examination, review, or agreed-upon procedures report on another party's assertion. Choice "a" is incorrect. A management consulting engagement to provide EDP advice to a client is not considered to be an attest engagement, because the accountant is not issuing an examination, review, or agreed-upon procedures report on another party's assertion. Choice "c" is incorrect. An income tax engagement to prepare federal and state tax returns is not considered to be an attest engagement.
Choice "d" is incorrect. The compilation of financial statements from a client's accounting records (a compilation engagement) is not considered to be an attest engagement. (Note that although a compilation of prospective financial statements is covered under Statements on Standards for Attestation Engagements, the question does not indicate that prospective financial statements are involved).
QUESTION 271
Which of the following statements concerning prospective financial statements is correct?
A. Onlyafinancialforecastwouldnormallybeappropriateforlimiteduse.
B. Onlyafinancialprojectionwouldnormallybeappropriateforgeneraluse.
C. Anytypeofprospectivefinancialstatementswouldnormallybeappropriateforlimiteduse. D. Anytypeofprospectivefinancialstatementswouldnormallybeappropriateforgeneraluse.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Any type of prospective financial statements (financial forecasts and financial projections) would normally be appropriate for limited use. Choice "a" is incorrect. Both financial forecasts and financial projections are appropriate for limited use.
Choice "b" is incorrect. Financial projections are appropriate for limited use only - not for general use.
Choice "d" is incorrect. Normally financial projections are not appropriate for general use, but financial forecasts are.

QUESTION 272
Negative assurance may be expressed when an accountant is requested to report on the:
A. Compilationofprospectivefinancialstatements.
B. CompliancewiththeprovisionsoftheForeignCorruptPracticesAct. C. Results of performing a review of management's assertion.
D. Audit of historical financial statements.
Correct Answer: C
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Negative assurance may be expressed when an accountant is requested to report on the results of performing a review of management's assertion. Choice "a" is incorrect. No assurance is provided in a compilation of prospective financial statements.
Choice "b" is incorrect. Whether an entity is in compliance with the provisions of the Foreign Corrupt Practices Act is a legal determination. An accountant may perform an examination or an agreed-upon procedures engagement with respect to such compliance but may not perform a review, and therefore would not express negative assurance. Choice "d" is incorrect. When reporting on an audit of historical financial statements, negative assurance is not an appropriate reporting option. The auditor must either express an opinion (positive assurance) or disclaim an opinion (no assurance).
QUESTION 273
Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a:
A. Partialpresentation.
B. Projectedbalancesheet. C. Financial forecast.
D. Financial projection.
Correct Answer: A
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. "Partial presentations" are presentations of prospective financial information which would not ordinarily be appropriate for general use because they omit one or more of these essential elements: (a) sales or gross revenue, (b) gross profit or cost of sales, (c) unusual or infrequently occurring items, (d) provision for income taxes, (e) discontinued operations or extraordinary items, (f) income from continuing operations, (g) net income, (h) earnings per share,

and (i) significant changes in financial position. Choices "b", "c", and "d" are incorrect. Projected balance sheets, financial forecasts and financial projections are forms of prospective financial statements.
QUESTION 274
Which of the following activities would most likely be considered an attestation engagement?
A. Consultingwithmanagementrepresentativesofafirmtoprovideadvice.
B. Issuingareportaboutafirm'scompliancewithlawsandregulations.
C. Advocating a client's position on tax matters that are being reviewed by the IRS. D. Preparing a client's tax returns.
Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Attest engagements may result in reports related to compliance with laws and regulations.
Choices "a", "c", and "d" are incorrect. Attestation engagements specifically exclude consulting services, advocacy services, and return preparation.
QUESTION 275
Which of the following professional services would be considered an attestation engagement?
A. AdvocatingonbehalfofaclientabouttrusttaxmattersunderreviewbytheInternalRevenueService.
B. Providingfinancialanalysis,planning,andcapitalacquisitionservicesasapart-time,in-housecontroller.
C. Advising management in the selection of a computer system to meet business needs.
D. Preparing the income statement and balance sheet for one year in the future based on client expectations and predictions.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Preparing future financial statements constitutes a compilation of prospective financial statements, which is considered to be an attestation service. Choices "a" and "c" are incorrect. Attestation engagements specifically exclude advocacy services and consulting services.
Choice "b" is incorrect. Attest engagements include those in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party, as well as engagements related to

prospective financial statements. Performing the role of in-house controller part-time does not fit into any of these categories.
QUESTION 276
When an accountant compiles a financial forecast, the accountant's report should include a(an):
A. Explanation:ofthedifferencesbetweenafinancialforecastandafinancialprojection. B. Caveatthattheprospectiveresultsofthefinancialforecastmaynotbeachieved.
C. Statement that the accountant's responsibility to update the report is limited to one year. D. Disclaimer of opinion on the reliability of the entity's internal controls.
Correct Answer: B
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Whenever an accountant reports on prospective financial statements, the report should include a caveat that prospective results may not be achieved. Choice "a" is incorrect. A compilation report on a financial forecast does not include an Explanation: of the differences between a forecast and a projection. Choice "c" is incorrect. Whenever an accountant reports on prospective financial statements, the report should include a statement that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. Choice "d" is incorrect. A compilation report on a financial forecast does not include a disclaimer of opinion on the reliability of the entity's internal controls.
QUESTION 277
Which of the following is a professional engagement that a CPA may perform to provide assurance on a system's reliability?
A. MAS AssurAbility. B. CPA WebMaster. C. MAS AttestSure. D. CPA SysTrust.
Correct Answer: D
Section: Auditing and Attestation (I) (Volume B) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. A SysTrust engagement is an attest engagement that provides assurance on the reliability of any defined electronic system.
Choice "a" is incorrect. There is no professional engagement by this name. Choice "b" is incorrect. There is no professional engagement by this name. Choice "c"

is incorrect. There is no professional engagement by this name.